5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 *ODVVQHUY5s5H\QROGV 1R 3XUVXDQW WR 6L[WK &LUFXLW 5XOH 7REDFFR&RHWDO (/(&7521,& &,7$7,21 )(' $SS 3 WK &LU )LOH 1DPH DS XQSXEOLVKHGKROGLQJWKDWFRQVSLUDF\FODLPIDLOVZKHQ XQGHUO\LQJWRUWFODLPIDLOV 81,7('67$7(6&28572)$33($/6 &21&/86,21 )257+(6,;7+&,5&8,7 )RUWKHUHDVRQVVHWIRUWKDERYHZH$)),50WKHMXGJPHQW BBBBBBBBBBBBBBBBB RIWKHGLVWULFWFRXUW s2+1 s */$661(5([HFXWRU ; IRUWKH(VWDWHRI(OODs *ODVVQHUGHFHDVHG 1R 3ODLQWLII$SSHOODQW ! Y 5 s 5(<12/'6 72%$&&2 &203$1< 3+,/,3 0255,6 ,1& 'HIHQGDQWV$SSHOOHHV 1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH1RUWKHUQ'LVWULFWRI2KLRDW$NURQ 1Rn'DYLG''RZGsU'LVWULFWsXGJH $UJXHGsXQH 'HFLGHGDQG)LOHG$XJXVW %HIRUH.(,7+0(55,77DQG&2/(&LUFXLWsXGJHV *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO BBBBBBBBBBBBBBBBB %HFDXVH *ODVVQHU KDV IDLOHG WR DOOHJH IDFWV VXIILFLHQW WR VXSSRUW D ILQGLQJ WKDW KLV GHFHGHQW UHOLHG RQ 'HIHQGDQWVj &2816(/ DOOHJHGPLVUHSUHVHQWDWLRQVKHKDVIDLOHGWRSOHDGSDUWLFXODUO\ RURWKHUZLVHWKHUHOLDQFHHOHPHQWUHTXLUHGWRVWDWHDFRPPRQ $5*8('3HWHU'sDQRV3(5$17,1,'(6 12/$1 ODZIUDXGFODLPXQGHU2KLRODZ &2$NURQ2KLRIRU$SSHOODQWsHIIUH\ssRQHVs21(6 '$<5($9,6 32*8(&ROXPEXV2KLRIRU$SSHOOHHV %3UR[LPDWH,QMXU\ 21 %5,() 3HWHU ' sDQRV &KULV 7 1RODQ 3(5$17,1,'(6 12/$1 &2 $NURQ 2KLR IRU (YHQ LI *ODVVQHU FRXOG HVWDEOLVK WKDW KLV GHFHGHQW $SSHOODQW sHIIUH\ s sRQHV s21(6 '$< 5($9,6 MXVWLILDEO\UHOLHGRQ'HIHQGDQWVjDOOHJHGPLVUHSUHVHQWDWLRQV 32*8( &ROXPEXV 2KLR 5REHUW & :HEHU 'HQQLV / DQG FRQFHDOPHQW RI LWV H[WUD NQRZOHGJH FRQFHUQLQJ WKH 0XUSK\ s21(6 '$< 5($9,6 32*8( &OHYHODQG GDQJHUVRIFLJDUHWWHVPRNLQJKHKDVSOHGQRIDFWVWRVXSSRUW 2KLR 0DU\ 0 %LWWHQFH 'LDQH 3 &KDSPDQ %$.(5 D ILQGLQJ RI mD UHVXOWLQJ LQMXU\ SUR[LPDWHO\ FDXVHG E\ WKH +267(7/(5 &OHYHODQG 2KLR 7KRPDV s )UHGHULFN UHOLDQFHl6HH%XUU1(GDW*ODVVQHUjVIUDXG 0DWWKLDV $ /\GRQ sXOLH 6RORZD\ sRVHSK s =DNQRHQ FODLPVXQOLNHKLV23/$FODLPVDUHEDVHGRQ'HIHQGDQWVj :,16721 675$:1&KLFDJR,OOLQRLVIRU$SSHOOHHV PLVUHSUHVHQWDWLRQV DQG FRQFHDOPHQW QRW RI LQIRUPDWLRQ FRQFHUQLQJWKHJHQHUDOKHDOWKULVNVDVVRFLDWHGZLWKVPRNLQJ BBBBBBBBBBBBBBBBB LH WKRVH ULVNV WKDW DUH FRPPRQ NQRZOHGJH EXW RI LQIRUPDWLRQEH\RQGWKHFRPPRQNQRZOHGJHRIWKHRUGLQDU\ 23,1,21 SHUVRQLHWKHPDQLSXODWLRQRIQLFRWLQHOHYHOVLQFLJDUHWWHV BBBBBBBBBBBBBBBBB 7KXV*ODVVQHUPXVWSOHDGIDFWVVXIILFLHQWWRVXSSRUWDILQGLQJ WKDW KLV GHFHGHQW ZDV LQMXUHG QRW PHUHO\ E\ RQH RI WKRVH 5 *8< &2/( s5 &LUFXLW sXGJH 3ODLQWLII$SSHOODQW VPRNLQJUHODWHGGLVHDVHVFRPPRQO\NQRZQWRWKHRUGLQDU\ sRKQs*ODVVQHULQGLYLGXDOO\DQGDVH[HFXWRUIRUWKHHVWDWHRI SHUVRQ EXW DV D SUR[LPDWH UHVXOW RI KHU UHOLDQFH RQ (OOD s *ODVVQHU DSSHDOV WKH GLVWULFW FRXUWjV GHFLVLRQ 'HIHQGDQWVj PLVUHSUHVHQWDWLRQV DQG FRQFHDOPHQW RI GLVPLVVLQJ KLV ZURQJIXO GHDWK DFWLRQ DJDLQVW 'HIHQGDQWV LQIRUPDWLRQEH\RQGWKHFRPPRQNQRZOHGJHRIWKHRUGLQDU\ $SSHOOHHV 5 s 5H\QROGV 7REDFFR &R DQG 3KLOLS 0RUULV SHUVRQ+HKDVIDLOHGWRGRVR ,QFm'HIHQGDQWVlIRUIDLOXUHWRVWDWHDFODLPXSRQZKLFK UHOLHIFRXOGEHJUDQWHGSXUVXDQWWR)HG5&LY3E ,9&RQVSLUDF\ *ODVVQHUjVHLJKWFRXQW&RPSODLQWRULJLQDOO\ZDVILOHGLQWKH 6XPPLW&RXQW\&RXUWRI&RPPRQ3OHDVDQGVXEVHTXHQWO\ %HFDXVH WKH GLVWULFW FRXUW SURSHUO\ GLVPLVVHG *ODVVQHUjV ZDV UHPRYHG WR WKH 8QLWHG 6WDWHV 'LVWULFW &RXUW IRU WKH VXEVWDQWLYHFODLPVKLVFODLPIRUFRQVSLUDF\PXVWIDLO6HH 1RUWKHUQ'LVWULFWRI2KLREDVHGXSRQGLYHUVLW\MXULVGLFWLRQ 13),9,QFY7UDQVLWLRQDO+HDOWK6HUYV)6XSS LWDOOHJHVWKHIROORZLQJ)UDXG'HFHLW&RXQW,&RQVSLUDF\ 6'2KLRm&RQVSLUDF\LQDQGRILWVHOIGRHVQRW &RXQW,,1HJOLJHQFH&RXQW,,,6WULFW/LDELOLW\&RXQW,9 QRUPDOO\ HVWDEOLVK D EDVLV IRU UHFRYHU\ LQ D FLYLO DFWLRQ LQ 1HJOLJHQW 0LVUHSUHVHQWDWLRQ &RXQW 9 &RQVXPHU )UDXG 2KLRUDWKHUWKHUHPXVWEHDQDFWLRQDEOHZURQJFRPPLWWHGDV D UHVXOW RI WKH FRQVSLUDF\l FLWDWLRQ RPLWWHG $NLQV Y =HQHFD,QF:/DW WK&LUsXO\ 7KH &RPSODLQW DOVR QDPHG msRKQ 'RH &RUSRUDWLRQV , WKURXJK ;l EXW WKHVH HQWLWLHV KDYH QRW EHHQ LGHQWLILHG *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO MXULVGLFWLRQVPD\RSHUDWHDVDGHILQLWLRQDOGHIHQVHWRDVWULFW &RXQW9,0DOLFLRXV&RQGXFW&RXQW9,,DQG6XUYLYRUVKLS OLDELOLW\FODLPLWSOD\VQRVLPLODUUROHLQWKHIUDXGFRQWH[Wl &RXQW9,,,*ODVVQHUDSSHDOVWKHGLVWULFWFRXUWjVGHFLVLRQ DVVLJQLQJHUURUWRWKHFRXUWjVGHWHUPLQDWLRQWKDWWKH2KLR 7KHGLVWULFWFRXUWjVUHDVRQLQJWKDWFRPPRQNQRZOHGJHDV 3URGXFW /LDELOLW\ $FW m23/$l 2+,2 5(9 &2'( D PDWWHU RI ODZ PDNHV DQ\ UHOLDQFH QRQMXVWLILDEOH IRU EDUV KLV FODLPV IRU QHJOLJHQFH VWULFW SXUSRVHV RI FRPPRQ ODZ IUDXG LV IODZHG FRPPRQ OLDELOLW\QHJOLJHQWPLVUHSUHVHQWDWLRQDQGPDOLFLRXVFRQGXFW NQRZOHGJH RI RQH WKLQJ LH WKH JHQHUDO KHDOWK ULVNV &RXQWV ,,, ,9 9 DQG 9,, EDVHG XSRQ WKH mFRPPRQ DVVRFLDWHGZLWKVPRNLQJLVE\QRPHDQVFRPPRQNQRZOHGJH NQRZOHGJHl GRFWULQH 2KLR ODZ EDUV KLV FRPPRQ ODZ RI DQRWKHU LH WKH PDQLSXODWLRQ RI QLFRWLQH OHYHOV LQ LWV IUDXGFODLP&RXQW,RQWKHJURXQGWKDWEHFDXVHWKHKHDOWK SURGXFWV+HUH*ODVVQHUjVIUDXGFODLPLVEDVHGRQDOOHJDWLRQV ULVNVDVVRFLDWHGZLWKVPRNLQJDUHFRPPRQNQRZOHGJHDQ\ WKDW 'HIHQGDQWV PLVUHSUHVHQWHG DQG FRQFHDOHG H[WUD UHOLDQFH RQ 'HIHQGDQWVj DOOHJHG PLVUHSUHVHQWDWLRQV RU NQRZOHGJH EH\RQG FRPPRQ NQRZOHGJH FRQFHUQLQJ WKH FRQFHDOPHQWRIWKRVHULVNVLVQRWMXVWLILDEOHDQGEHFDXVH GDQJHUVRIVPRNLQJ$OWKRXJKZHUHFRJQL]HWKDWFRPPRQ KLV FRPPRQ ODZ IUDXG FODLP IDLOV DV D PDWWHU RI ODZ KLV NQRZOHGJHGRHVQRWDOZD\VYLWLDWHWKHMXVWLILDELOLW\RIUHOLDQFH GHULYDWLYH FRQVSLUDF\ FODLP &RXQW ,, DOVR PXVW IDLO DOOHJHGLQFODLPVRIIUDXG*ODVVQHUQHYHUWKHOHVVKDVIDLOHGWR *ODVVQHUGRHVQRWDSSHDOWKHGLVWULFWFRXUWjVGLVPLVVDORIKLV VWDWHDFODLPIRUFRPPRQODZIUDXGDVDPDWWHURIODZ FRQVXPHUIUDXGDQGVXUYLYRUVKLSFODLPV&RXQWV9,DQG9,,, DQGWKHUHIRUHWKRVHLVVXHVDUHQRWEHIRUHXV *ODVVQHU KDV DOOHJHG QR IDFWV ZKDWVRHYHU WKDW ZRXOG VXSSRUW D ILQGLQJ WKDW KLV GHFHGHQW UHOLHG RQ 'HIHQGDQWVj )RUWKHUHDVRQVWKDWIROORZZH$)),50WKHGHFLVLRQRIWKH DOOHJHGPLVUHSUHVHQWDWLRQVDQGFRQFHDOPHQW6HH7RPSNLQ GLVWULFWFRXUW )6XSSGDWGLVPLVVLQJZLGRZjVFRPPRQODZIUDXG FODLP EHFDXVH VKH FRXOG QRW HVWDEOLVK WKDW WKH GHFHGHQW %$&.*5281' VPRNHG EHFDXVH KH UHOLHG RQ WKH GHIHQGDQWjV PLVUHSUHVHQWDWLRQVUHYjGLQSDUWRQRWKHUJURXQGVBB)G 3ODLQWLIIjV GHFHGHQW (OOD s *ODVVQHU EHJDQ VPRNLQJ BB:/WK&LU$VWKHGLVWULFWFRXUW 'HIHQGDQWVj WREDFFR SURGXFWV LQ 7KH &RPSODLQW QRWHG DOOHJHVWKDWm>D@VDGLUHFWDQGSUR[LPDWHUHVXOWRIGHFHGHQWjV UHOLDQFH RQ 'HIHQGDQWVj PLVUHSUHVHQWDWLRQV RPLVVLRQV DQG ,W ZRXOG ERUGHU RQ VSHFXODWLRQ IRU D MXU\ WR WU\ WR FRQFHDOPHQWVWKH3ODLQWLIIjVGHFHGHQW(OOD*ODVVQHUDJH DVFHUWDLQZKDWLIDQ\LQIRUPDWLRQSODLQWLIIjVGHFHGHQW GLHGRQ0DUFKl$OWKRXJKWKH&RPSODLQWGRHVQRW DFFHSWHG RU UHMHFWHG ZKDW LI DQ\ RI WKDW LQIRUPDWLRQ LQGLFDWH (OOD *ODVVQHUjV FDXVH RI GHDWK LW DOOHJHV WKDW SODLQWLIIjVGHFHGHQWUHOLHGXSRQLQPDNLQJKHUGHFLVLRQWR 'HIHQGDQWV NQHZ WKHLU WREDFFR SURGXFWV FDXVHG YDULRXV VPRNH $UJXDEO\ SODLQWLII FRXOG WHVWLI\ DV WR KLV VPRNLQJUHODWHG GLVHDVHV DQG VRXJKW WR mPLVOHDG FRQIXVH XQGHUVWDQGLQJRIKLVZLIHjVNQRZOHGJHDQGRUUHOLDQFH DQGFRQFHDOIURPWKHSXEOLFWKHWUXHGDQJHUVDVVRFLDWHGZLWK KRZHYHUWKLVZRXOGEHDWEHVWVHFRQGKDQGHYLGHQFH VPRNLQJ FLJDUHWWHVl *ODVVQHU DOOHJHV WKDW 'HIHQGDQWV DQGDWZRUVWKHDUVD\ mHQJDJHGLQDQRQJRLQJFRQVSLUDF\WRDFWLYHO\PLVUHSUHVHQW RPLWDQGFRQFHDOWKHWUXWKDERXWQLFRWLQHLQRUGHUWRVXVWDLQ WKH DGGLFWLRQV RI H[LVWLQJ FLJDUHWWH VPRNHUV DQG WR KRRN WKRXVDQGV RI QHZ VPRNHUV HYHU\ GD\ LQFOXGLQJ 3ODLQWLIIjV $PHQGROD GLG QRW DGGUHVV WKH FRPPRQ ODZ IUDXG FODLP DQ\ IXUWKHU H[FHSW WR GLVPLVV LW EDVHG RQ D IDLOXUH WR SOHDG WKH DOOHJDWLRQ ZLWK GHFHGHQW 1RW RQO\ GLG WKH 7REDFFR ,QGXVWU\ NQRZ SDUWLFXODULW\ SXUVXDQW WR )HG 5 &LY 3 E *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO PLVUHSUHVHQWRPLWDQGFRQFHDOWKDWQLFRWLQHLVDQDGGLFWLYH %XUUY%RDUGRI&RXQW\&RPPjUVRI6WDUN&R1(G GUXJ3ODLQWLIIDQGRWKHUFLJDUHWWHFRQVXPHUVDUHLQIRUPHGDQG TXRWDWLRQPDUNVDQGFLWDWLRQVRPLWWHG EHOLHYH WKDW WKH 7REDFFR ,QGXVWU\ PDQLSXODWHV DQG $GXW\WRGLVFORVHDQGFRUUHVSRQGLQJOLDELOLW\IRUIDLOXUHWR FRQWUROVWKHOHYHOVRIQLFRWLQHLQWKHVHSURGXFWVWRFUHDWHDQG GLVFORVHDULVHVZKHQ VXVWDLQWKHDGGLFWLRQl WKHSDUW\IDLOVWRH[HUFLVHUHDVRQDEOHFDUHWRGLVFORVHD ',6&866,21 PDWHULDOIDFWZKLFKPD\MXVWLILDEO\LQGXFHDQRWKHUSDUW\ WRDFWRUUHIUDLQIURPDFWLQJDQGWKHQRQGLVFORVLQJSDUW\ :HUHYLHZGHQRYRDGLVWULFWFRXUWjVGLVPLVVDOIRUIDLOXUHWR NQRZVWKDWWKHIDLOXUHWRGLVFORVHVXFKLQIRUPDWLRQWRWKH VWDWHDFODLPXSRQZKLFKUHOLHIFDQEHJUDQWHG6HH6LVWUXQN RWKHUSDUW\ZLOOUHQGHUDSULRUVWDWHPHQWRUUHSUHVHQWDWLRQ Y&LW\RI6WURQJVYLOOH)GWK&LU7R XQWUXHRUPLVOHDGLQJ VXUYLYHDPRWLRQWRGLVPLVVXQGHU)HG5&LY3ED mFRPSODLQWPXVWFRQWDLQHLWKHUGLUHFWRULQIHUHQWLDODOOHJDWLRQV sRQHV)6XSSGDWTXRWLQJ0LOHVY0F6ZHJLQ UHVSHFWLQJ DOO WKH PDWHULDO HOHPHQWV WR VXVWDLQ D UHFRYHU\ 1(G XQGHUVRPHYLDEOHOHJDOWKHRU\l6FKHLGY)DQQ\)DUPHU &DQG\6KRSV,QF)GWK&LULQWHUQDO $sXVWLILDEOH5HOLDQFH TXRWDWLRQVDQGFLWDWLRQRPLWWHG +HUHWKHGLVWULFWFRXUWIRFXVHGRQWKHmMXVWLILDEOHUHOLDQFHl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m>&@RPPRQ NQRZOHGJH LV QRW QHFHVVDULO\ D GHIHQVH WR >D 0RUWJDJH&R)GWK&LU FRPPRQODZIUDXG@FODLPHVSHFLDOO\ZKHUHDVKHUHWKHUHDUH DOOHJDWLRQV WKDW 5H\QROGV PDQLSXODWHG QLFRWLQH OHYHOV DQG :KHQ IHGHUDO MXULVGLFWLRQ LV EDVHG XSRQ GLYHUVLW\ RI NQRZLQJO\FRQFHDOHGDGYHUVHUHVHDUFKUHVXOWVl+LOOY5s FLWL]HQVKLSXQGHU86&DVLVWKHFDVHKHUHZHDUH 5H\QROGV7REDFFR&R)6XSSG:'.\ ERXQGE\WKHVXEVWDQWLYHODZRIWKHVWDWHLQZKLFKWKHDFWLRQ m:KLOH WKH FRPPRQ NQRZOHGJH GRFWULQH LQ VRPH RULJLQDOO\ZDVEURXJKW6HH(ULH55Y7RPNLQV86 1HLWKHU SDUW\ GLVSXWHV WKH GLVWULFW FRXUWjV GHWHUPLQDWLRQ WKDW 23/$ JRYHUQV *ODVVQHUjV FODLPV RI QHJOLJHQFHVWULFWOLDELOLW\QHJOLJHQWPLVUHSUHVHQWDWLRQDQG *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO H[LVWHG D ZLGHVSUHDG SXEOLF DZDUHQHVV RI WKH KHDOWK ULVNV PDOLFLRXVFRQGXFW&RXQWV,,,,999,,)XUWKHUQHLWKHU DVVRFLDWHG ZLWK VPRNLQJ VXFK WKDW ZH PXVW LPSXWH WKLV SDUW\GLVSXWHVWKDW*ODVVQHUjVIUDXGGHFHLWFODLP&RXQW,LV mFRPPRQNQRZOHGJHlWRKHUDQGSUHVXPHWKDWVKHZDVDZDUH JRYHUQHG E\ 2KLR FRPPRQ ODZ %HIRUH ZH DGGUHVV WKH RIDQGDVVXPHGWKRVHULVNV%HFDXVH*ODVVQHUjV23/$FODLPV TXHVWLRQRIZKHWKHU*ODVVQHUVWDWHGDFODLPXSRQZKLFKUHOLHI QRWSUHHPSWHGE\WKH/DEHOLQJ$FWQHYHUWKHOHVVDUHEDUUHGE\ FDQ EH JUDQWHG XQGHU HLWKHU 23/$ RU 2KLR FRPPRQ ODZ WKHFRPPRQNQRZOHGJHGRFWULQHWKHGLVWULFWFRXUWSURSHUO\ KRZHYHU LW LV QHFHVVDU\ WR FRQVLGHU ZKHWKHU DQ\ RU DOO RI GLVPLVVHGWKRVHFODLPVSXUVXDQWWR)HG5&LY3E *ODVVQHUjVFODLPVDUHSUHHPSWHGE\IHGHUDOODZ ,,,&RPPRQ/DZ)UDXG ,3UHHPSWLRQ *ODVVQHUjVFRPPRQODZIUDXGFODLPJRHVEH\RQGKLV23/$ ,Q&RQJUHVVHQDFWHGWKH)HGHUDO&LJDUHWWH/DEHOLQJ FODLPVLQWKDWKHDVVHUWVWKDW'HIHQGDQWVKDGH[WUDNQRZOHGJH DQG $GYHUWLVLQJ $FW 86& HW VHT ZKLFK FRQFHUQLQJ WKH KDUPIXO HIIHFWV RI VPRNLQJ VXFK DV WKH EHFDPHHIIHFWLYHRQsDQXDU\6HFWLRQRIWKH$FW DGGLFWLYHQDWXUHRIQLFRWLQHDQGWKHPDQLSXODWLRQRIQLFRWLQH PDQGDWHGWKDWDOOFLJDUHWWHVVROGRUGLVWULEXWHGLQWKH8QLWHG OHYHOVLQFLJDUHWWHVWKDWWKH\ZLWKKHOGWKDWLQIRUPDWLRQGHVSLWH 6WDWHVKDYHDZDUQLQJRQWKHSDFNDJHVWDWLQJm&$87,21 D GXW\ WR GLVFORVH LW DQG WKDW WKH\ LQ IDFW PDGH PDWHULDO &,*$5(77( 602.,1* 0$< %( +$=$5'286 72 PLVUHSUHVHQWDWLRQVDERXWFLJDUHWWHVNQRZLQJVXFKVWDWHPHQWV <285+($/7+l86&6HFWLRQRI WREHIDOVH*ODVVQHUIXUWKHUDOOHJHVWKDWWKHGHFHGHQWUHOLHG WKH/DEHOLQJ$FWZDVFDSWLRQHGm3UHHPSWLRQlDQGVWDWHG RQ'HIHQGDQWVj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sXO\DPHQGHGWKH$FWDQG FDOOHG IRU VWURQJHU ZDUQLQJ ODEHOV RQ FLJDUHWWH SDFNDJHV G ZLWK WKH LQWHQW RI PLVOHDGLQJ DQRWKHU LQWR UHO\LQJ UHTXLULQJ WKDW IURP WKHQ RQ WKH ZDUQLQJ KDG WR VWDWH WKDW XSRQLW VPRNLQJ LV GDQJHURXV WR RQHjV KHDOWK UDWKHU WKDQ VLPSO\ VWDWLQJWKDWVPRNLQJPD\EHKD]DUGRXV6HH86& H MXVWLILDEOH UHOLDQFH XSRQ WKH UHSUHVHQWDWLRQ RU 7KH$FWDOVRPRGLILHGWKHSUHHPSWLRQSURYLVLRQ FRQFHDOPHQWDQG RIWKH$FWE\DPHQGLQJEWRUHDGDVIROORZV IDUHVXOWLQJLQMXU\SUR[LPDWHO\FDXVHGE\WKHUHOLDQFH *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO 1R UHTXLUHPHQW RU SURKLELWLRQ EDVHG RQ VPRNLQJ DQG GHFHGHQWEHJDQVPRNLQJLQDQGFRQWLQXHGWRVPRNHXS KHDOWKVKDOOEHLPSRVHGXQGHU6WDWHODZZLWKUHVSHFWWR XQWLO KHU GHDWK LQ $FFRUGLQJO\ ZH KROG WKDW WKH WKH DGYHUWLVLQJ RU SURPRWLRQ RI DQ\ FLJDUHWWHV WKH FRPPRQNQRZOHGJHGRFWULQHEDUV*ODVVQHUjV23/$FODLPVDV SDFNDJHV RI ZKLFK DUH ODEHOHG LQ FRQIRUPLW\ ZLWK WKH DPDWWHURIODZ SURYLVLRQVRIWKLVFKDSWHU :HUHFHQWO\DIILUPHGDVLPLODUFDVHGLVPLVVHGRQDE 86&E PRWLRQ ZKHUH WKH FRPSODLQW DOOHJHG DPRQJ RWKHU WKLQJV QHJOLJHQW PLVUHSUHVHQWDWLRQ DQG LQWHQWLRQDO LQIOLFWLRQ RI ,Q&LSROORQHY/LJJHWW*URXS,QF86 HPRWLRQDO GLVWUHVV XQGHU 23/$ 6HH $PHQGROD Y 5 s SOXUDOLW\RSLQLRQWKH6XSUHPH&RXUWDGGUHVVHGWKHVFRSHRI 5H\QROGV7REDFFR&R)G:/WK ERWKWKHDQG$FWLQVRIDUDVWKH\SUHHPSWHGYDULRXV &LU1RYXQSXEOLVKHG,Q$PHQGRODWKHSODLQWLII VWDWHODZGDPDJHVFODLPV,Q&LSROORQHWKHSODLQWLIIDVVHUWHG EHJDQVPRNLQJLQZHOOEHIRUH&RQJUHVVPDQGDWHGDQ\ WKDWWKHGHIHQGDQWFLJDUHWWHPDQXIDFWXUHUVZHUHUHVSRQVLEOH ZDUQLQJODEHOVRQFLJDUHWWHSDFNDJHVDQGFRQWLQXHGWRVPRNH IRUWKHGHDWKRIKLVPRWKHUDORQJWLPHVPRNHU7KHSODLQWLII XQWLOZHOODIWHUFLJDUHWWHZDUQLQJODEHOVPDGHWKHKHDOWK DOOHJHGWKDWGHIHQGDQWVEUHDFKHGH[SUHVVZDUUDQWLHVFRQWDLQHG ULVNVDVVRFLDWHGZLWKVPRNLQJFRPPRQNQRZOHGJH)RFXVLQJ LQ WKHLU DGYHUWLVLQJ IDLOHG WR ZDUQ FRQVXPHUV DERXW QRW RQ WKH SRLQW DW ZKLFK WKH SODLQWLII EHJDQ VPRNLQJ EXW VPRNLQJjVKD]DUGVIUDXGXOHQWO\PLVUHSUHVHQWHGWKRVHKD]DUGV UDWKHUWKHSRLQWDWZKLFKVKHTXLWVPRNLQJZHKHOGWKDWWKH WRFRQVXPHUVDQGFRQVSLUHGWRGHSULYHWKHSXEOLFRIPHGLFDO SODLQWLIIjV23/$FODLPVZHUHEDUUHGDVDPDWWHURIODZE\WKH DQGVFLHQWLILFLQIRUPDWLRQDERXWVPRNLQJDOOLQGHURJDWLRQRI FRPPRQNQRZOHGJHGRFWULQH6HHLGDW GXWLHVXQGHU1HZsHUVH\ODZ6HHLGDW7KHTXHVWLRQ EHIRUHWKH&LSROORQH&RXUWZDVZKHWKHUWKH$FWRULWV 1RWRQO\GLGWKH$PHQGROD&RXUWUHO\RQ5R\VGRQLWDOVR SUHGHFHVVRUSUHHPSWHGSODLQWLII VFRPPRQODZFODLPV IRXQGVXSSRUWLQsRQHVY$PHULFDQ7REDFFR&R)6XSS DJDLQVWWKHGHIHQGDQWV G1'2KLRDFRQVROLGDWHGDFWLRQEDVHGRQ 23/$FODLPVRIVWULFWOLDELOLW\QHJOLJHQFHIUDXGQRWEDVHGRQ &LSSRORQHKHOGWKDWWKHSUHHPSWLYHVFRSHRIHDFK$FWZDV FRPPRQODZDQGEUHDFKRIZDUUDQW\,Qs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jVSUHHPSWLYHUHDFKWRLQFOXGHVRPHEXWQRW GLG*ODVVQHUjVGHFHGHQWEHJLQVPRNLQJZHOODIWHUWKH DOO FRPPRQ ODZ GDPDJHV DFWLRQV 6HH LG DW $FW PDQGDWHG ZDUQLQJ ODEHOV RQ FLJDUHWWH SDFNDJHV VKH 8OWLPDWHO\WKH&RXUWIRXQGLWQHFHVVDU\WRORRNEH\RQGWKH FRQWLQXHG WR VPRNH HYHQ DIWHU WKH $FW VWUHQJWKHQHG ODEHOVDWWDFKHGWRSODLQWLIIjVFRPPRQODZFODLPVDQGLQVWHDG WKRVH ZDUQLQJV 7KXV ZH ILQG WKDW IURP WKH WLPH (OOD *ODVVQHUEHJDQVPRNLQJXSXQWLOWKHWLPHRIKHUGHDWKWKHUH *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO QLFRWLQH OHYHOV DQG WKHLU FDPSDLJQ WR UHVXUUHFW D WR HYDOXDWH HDFK FODLP WR GHWHUPLQH ZKHWKHU LW ZDV LQ IDFW mVPRNLQJFRQWURYHUV\lWKDWLQIRUPDWLRQGRHVQRWQHJDWH SUHHPSWHGE\WKH$FW6HHLGDW WKHSXEOLFjVORQJKHOGNQRZOHGJHWKDWFLJDUHWWHVDUHDQG ZHUHGDQJHURXVWRKHDOWK &LSSRORQHUHFRJQL]HGWKDWLQRUGHUWRGHFLGHZKHWKHUDQ\ FODLPLVSUHHPSWHGDFRXUWPXVWILUVWGHWHUPLQHmZKHWKHUWKH ,G7KHFRXUWUHFRJQL]HGWKDWWKHSODLQWLIIDQGKHUGHFHGHQW OHJDOGXW\WKDWLVWKHSUHGLFDWHRIWKHFRPPRQODZGDPDJHV EHJDQVPRNLQJLQDQGUHVSHFWLYHO\ZHOODIWHUWKH DFWLRQ FRQVWLWXWHV D µUHTXLUHPHQW RU SURKLELWLRQ EDVHG RQ /DEHOLQJ$FWEHFDPHHIIHFWLYHRQsDQXDU\VWDWLQJ VPRNLQJDQGKHDOWKLPSRVHGXQGHU6WDWHODZZLWKUHVSHFW mWKH FDVH ODZ LV ZHOO VHWWOHG WKDW WKH KHDOWK KD]DUGV RI WRDGYHUWLVLQJRUSURPRWLRQjJLYLQJWKDWFODXVHDIDLUEXW VPRNLQJ ZHUH ZLWKLQ WKH RUGLQDU\ FLWL]HQjV µFRPPRQ QDUURZ UHDGLQJl ,G DW TXRWLQJ 86& NQRZOHGJHjlE\WKHWLPHWKHSODLQWLIIVEHJDQVPRNLQJ,G E7KH&RXUWWKHQDQDO\]HGWKHSUHHPSWLYHHIIHFWRI WKH$FWRQHDFKRISODLQWLIIjVFODLPVFRQFOXGLQJWKDW ,Q 7RPSNLQ ZH HPSKDVL]HG WKDW EHFDXVH WKH SODLQWLIIV SODLQWLIIjVIDLOXUHWRZDUQFODLPVZHUHSUHHPSWHGWRWKHH[WHQW DOOHJHG WKDW GHIHQGDQWVj SURGXFWV SUR[LPDWHO\ FDXVHG 0U WKDWWKH\UHOLHGRQDVWDWHODZmUHTXLUHPHQWRUSURKLELWLRQ 7RPSNLQjVOXQJFDQFHUWKHFRPPRQNQRZOHGJHLQTXLU\PXVW ZLWKUHVSHFWWRDGYHUWLVLQJRUSURPRWLRQl6HHLGDW EH QDUURZHG WR WKH TXHVWLRQ RI ZKHWKHU WKH OLQN EHWZHHQ 7KXVWKH&RXUWKHOGWKDWLQVRIDUDVFODLPVXQGHUDIDLOXUHWR FLJDUHWWHVPRNLQJDQGOXQJFDQFHUZDVFRPPRQNQRZOHGJH ZDUQ WKHRU\ UHTXLUHG D VKRZLQJ WKDW WKH FLJDUHWWH QRWVLPSO\ZKHWKHUWKHOLQNEHWZHHQFLJDUHWWHVPRNLQJDQG PDQXIDFWXUHUVjSRVWDGYHUWLVLQJRUSURPRWLRQVVKRXOG JHQHUDO KHDOWK PDODGLHV ZDV FRPPRQ NQRZOHGJH 6HH KDYHLQFOXGHGDGGLWLRQDORUPRUHFOHDUO\VWDWHGZDUQLQJV 7RPSNLQ BB )G DW BB :/ DW +HUH WKRVHFODLPVZHUHSUHHPSWHG6HHLG+RZHYHUWKH&RXUW *ODVVQHUGRHVQRWDOOHJHDQ\VSHFLILFLOOQHVVRULQMXU\FDXVHG KHOGWKDWWKH$FWGLGQRWSUHHPSWSODLQWLIIjVFODLPVWKDWUHOLHG E\ 'HIHQGDQWVj SURGXFWV KH DOOHJHV VLPSO\ WKDW VPRNLQJ RQWHVWLQJRUUHVHDUFKSUDFWLFHVRURWKHUDFWLRQVXQUHODWHGWR FLJDUHWWHVLVKD]DUGRXVWRRQHjVKHDOWKDQGWKDWKLVGHFHGHQW DGYHUWLVLQJRUSURPRWLRQ6HHLGDW7KH&RXUWDOVR ZDV KDUPHG DV D UHVXOW RI VPRNLQJ 7KXV ZH OLPLW RXU QRWHGIRUH[DPSOHWKDWEZRXOGQRWSUHHPSWVWDWHODZ FRPPRQNQRZOHGJHLQTXLU\WRWKHTXHVWLRQRIZKHWKHUWKH REOLJDWLRQV WR DYRLG SURGXFW OLDELOLW\ FODLPV DULVLQJ IURP OLQNEHWZHHQFLJDUHWWHVPRNLQJDQGJHQHUDOKHDOWKULVNVZDV PDQXIDFWXULQJRUGHVLJQGHIHFWV6HHLGDW FRPPRQNQRZOHGJHGXULQJWKHUHOHYDQWWLPHSHULRG%DVHG XSRQ5R\VGRQDQG7RPSNLQLWLVFOHDUWKDWWKHSRLQWDWZKLFK &LSSRORQH QH[W DQDO\]HG WKH SODLQWLIIjV IUDXGXOHQW WKHFRPPRQNQRZOHGJHGRFWULQHVHUYHVWREDUUHFRYHU\XQGHU PLVUHSUHVHQWDWLRQFODLPVWKHILUVWRIZKLFKZDVSUHGLFDWHGRQ 23/$IDOOVVRPHZKHUHEHWZHHQWKHSHULRGVRIWR DVWDWHODZSURKLELWLRQDJDLQVWDGYHUWLVLQJDQGSURPRWLRQDO 7RPSNLQDQG WR 5R\VGRQ6HH7RPSNLQBB VWDWHPHQWV WHQGLQJ WR PLQLPL]H VPRNLQJjV KHDOWK KD]DUGV )GDWBB:/DW ZKHWKHUFRPPRQ 7KDW FODLP DOOHJHG WKDW WKH PDQXIDFWXUHUVj DGYHUWLVLQJ NQRZOHGJH H[LVWHG SULRU WR WKH GDWH WKH SODLQWLIIjV QHXWUDOL]HG WKH HIIHFW RI WKH IHGHUDOO\ PDQGDWHG ZDUQLQJ GHFHGHQWTXLWVPRNLQJFUHDWHGDTXHVWLRQIRUWKHMXU\LQOLJKW ODEHOV7KH&RXUWKHOGWKDWVXFKDIUDXGFODLPZDVSUHHPSWHG RIWKHIDFWWKDW&RQJUHVVKDG\HWWRHQDFWWKH/DEHOLQJ$FW EHFDXVHLWZDVLQH[WULFDEO\OLQNHGWRWKHSODLQWLIIjVIDLOXUHWR 5R\VGRQ)GDWFRPPRQNQRZOHGJHEHWZHHQ ZDUQWKHRU\6HHLGDW+RZHYHUWKH&RXUWIRXQG DQGZDVVXIILFLHQWWREDUSODLQWLIIjVFODLPVGHVSLWH WKDWWKHSODLQWLIIjVVHFRQGIUDXGXOHQWPLVUHSUHVHQWDWLRQWKHRU\ WKHIDFWWKDWSODLQWLIIEHJDQVPRNLQJLQWZHQW\\HDUV ZKLFK DOOHJHG IDOVH UHSUHVHQWDWLRQ DQG FRQFHDOPHQW RI EHIRUHWKH/DEHOLQJ$FWZHQWLQWRHIIHFW+HUH*ODVVQHUjV PDWHULDOIDFWVZDVQRWSUHHPSWHGLQVRIDUDVWKRVHDOOHJDWLRQV *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO UHOLHGRQDVWDWHODZGXW\WRGLVFORVHPDWHULDOIDFWVWKURXJK 23/$FRGLILHGWKHFRPPRQNQRZOHGJHGRFWULQH&LWLQJWKH FKDQQHOV RI FRPPXQLFDWLRQ RWKHU WKDQ DGYHUWLVLQJ DQG GLVWULFWFRXUWjVMXGLFLDOQRWLFHWKDWmWREDFFRKDVEHHQXVHGIRU SURPRWLRQV6HHLGDW0RUHRYHUWKH&RXUWKHOGWKDW RYHU\HDUVDQGWKDWLWVFKDUDFWHULVWLFVKDYHDOVREHHQIXOO\ IUDXG FODLPV EDVHG RQ GHFHSWLYH DGYHUWLVLQJ DOVR DUH QRW H[SORUHGl WKH 5R\VGRQ &RXUW DGGUHVVHG WKH H[WHQW RI WKH SUHHPSWHG EHFDXVH m>V@XFK FODLPV DUH SUHGLFDWHG QRW RQ D SXEOLFjVNQRZOHGJHRIWKHGDQJHUVRIVPRNLQJEHWZHHQ GXW\ µEDVHG RQ VPRNLQJ DQG KHDOWKj EXW UDWKHU RQ D PRUH DQG WKH WHQ\HDU SHULRG LPPHGLDWHO\ SUHFHGLQJ WKH JHQHUDOREOLJDWLRQnWKHGXW\QRWWRGHFHLYHl,GDW FRPPHQFHPHQWRIWKHVXLW6HHLGDW:HKHOGWKDW TXRWLQJ86&E SODLQWLIIVj FODLPV ZHUH EDUUHG EHFDXVH m>N@QRZOHGJH WKDW FLJDUHWWHVPRNLQJLVKDUPIXOWRKHDOWKLVZLGHVSUHDGDQGFDQ ,QKROGLQJWKDWWKH$FWGLGQRWSUHHPSWDOOFRPPRQ EH FRQVLGHUHG SDUW RI WKH FRPPRQ NQRZOHGJH RI WKH ODZIUDXGFODLPVWKH&LSSRORQH&RXUWUHDVRQHG FRPPXQLW\l6HHLGDWFLWLQJ5R\VGRQY5s5H\QROGV 7REDFFR&R)6XSS('7HQQ &RQJUHVVLQWHQGHGWKHSKUDVHmUHODWLQJWRVPRNLQJDQG KHDOWKlZKLFKZDVHVVHQWLDOO\XQFKDQJHGE\WKH *ODVVQHUDWWHPSWVWRGLVWLQJXLVK5R\VGRQEDVHGRQWKH $FWWREHFRQVWUXHGQDUURZO\VRDVQRWWRSURVFULEHWKH :D[PDQ+HDULQJVZKHUHWKHWREDFFRLQGXVWU\jVNQRZOHGJH UHJXODWLRQ RI GHFHSWLYH DGYHUWLVLQJ 0RUHRYHU WKLV WKDW WREDFFR LV DGGLFWLYH DQG LWV PDQLSXODWLRQ RI QLFRWLQH UHDGLQJ RI mEDVHG RQ VPRNLQJ DQG KHDOWKl LV ZKROO\ OHYHOV LQ FLJDUHWWHV FDPH WR OLJKW GXULQJ D FRQJUHVVLRQDO FRQVLVWHQWZLWKWKHSXUSRVHVRIWKH$FW6WDWHODZ KHDULQJ FKDLUHG E\ &RQJUHVVPDQ :D[PDQ RI WKH SURKLELWLRQVRQIDOVHVWDWHPHQWVRIPDWHULDOIDFWGRQRW 6XEFRPPLWWHHRQ+HDOWKDQGWKH(QYLURQPHQWRIWKH+RXVH FUHDWHmGLYHUVHQRQXQLIRUPDQGFRQIXVLQJlVWDQGDUGV (QHUJ\ DQG &RPPHUFH &RPPLWWHH ,Q +ROODU Y 3KLOLS 8QOLNH VWDWHODZ REOLJDWLRQV FRQFHUQLQJ WKH ZDUQLQJ 0RUULV ,QF ) 6XSS G 1' 2KLR WKH QHFHVVDU\WRUHQGHUDSURGXFWmUHDVRQDEO\VDIHlVWDWHODZ SODLQWLII VLPLODUO\ DWWHPSWHG WR GLVWLQJXLVK 5R\VGRQ RQ WKH SURVFULSWLRQVRQLQWHQWLRQDOIUDXGUHO\RQO\RQDVLQJOH JURXQG WKDW LW ZDV GHFLGHG EHIRUH WKH :D[PDQ +HDULQJV XQLIRUP VWDQGDUG IDOVLW\ 7KXV ZH FRQFOXGH WKDW WKH DUJXLQJ WKDW WKH KHDULQJV LOOXPLQDWHG mWKH FRQVSLUDF\ WR SKUDVHmEDVHGRQVPRNLQJDQGKHDOWKlIDLUO\EXWQDUURZO\ GHIUDXGWKH$PHULFDQSXEOLFHQJDJHGLQE\WKH'HIHQGDQWVl FRQVWUXHGGRHVQRWHQFRPSDVVWKHPRUHJHQHUDOGXW\QRW ,GDW7KH+ROODU&RXUWSURSHUO\GHFOLQHGWRDFFHSWWKH WRPDNHIUDXGXOHQWVWDWHPHQWV$FFRUGLQJO\SHWLWLRQHUjV SODLQWLIIjVUHDVRQLQJVWDWLQJ FODLPEDVHGRQDOOHJHGO\IUDXGXOHQWVWDWHPHQWVPDGHLQ UHVSRQGHQWVjDGYHUWLVHPHQWVLVQRWSUHHPSWHGE\E :KLOH PRUH LQIRUPDWLRQ PD\ EH DYDLODEOH DERXW RIWKH$FW 'HIHQGDQWVj DOOHJHGO\ mLQWHQWLRQDO PDQLSXODWLRQl RI ,GDWIRRWQRWHRPLWWHG $SSO\LQJ WKH SOXUDOLW\ RSLQLRQ LQ &LSSRORQH WR WKH 7KH 7HQQHVVHH SURGXFWV OLDELOLW\ VWDWXWH UHOHYDQW LQ 5R\VGRQ VWDWHG &RPSODLQW LQ WKH SUHVHQW FDVH LV QR HDV\ WDVN DV *ODVVQHU WKDW DQ mXQUHDVRQDEO\ GDQJHURXVl SURGXFW LV RQH WKDW LV GRHVQRWDSSHDUWRKDYHPDGHDQ\HIIRUWZKDWVRHYHUWROLPLW KLVFODLPVWRWKRVHDOORZHGXQGHU&LSSRORQH%DVHGXSRQRXU GDQJHURXV WR DQ H[WHQW EH\RQG WKDW ZKLFK FRXOG EH FRQWHPSODWHG E\ WKH RUGLQDU\ FRQVXPHU ZKR SXUFKDVHV LW ZLWK WKH RUGLQDU\ LQWHUSUHWDWLRQ RI &LSROORQH KRZHYHU ZH ILQG WKDW WKH NQRZOHGJH FRPPRQ WR WKH FRPPXQLW\ DV WR LWV FKDUDFWHULVWLFV /DEHOLQJ $FW GRHV QRW SUHHPSW DOO RI *ODVVQHUjV 23/$ 7 & $ *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO KHDOWK ULVNV WKDW DUH FRPPRQ WR RUGLQDU\ NQRZOHGJHl FODLPVZKLFKVHHPWREHEDVHGXSRQERWKIDLOXUHWRZDUQDQG *DZORVNLY0LOOHU%UHZLQJ&R2KLR$SSG GHVLJQGHIHFWWKHRULHV7RWKHH[WHQWWKDW*ODVVQHUDOOHJHV 1(GKROGLQJWKDWWKHUHLVQRGXW\XQGHU IDLOXUHWRZDUQ FODLPV EDVHG XSRQ VRPH GXW\ RZHG E\ 2KLR ODZ WR SURWHFW DJDLQVW mGDQJHUV >WKDW@ DUH JHQHUDOO\ 'HIHQGDQWVWRLVVXHDGGLWLRQDORUPRUHFOHDUO\VWDWHGZDUQLQJV NQRZQDQGUHFRJQL]HGE\WKHRUGLQDU\FRQVXPHUl RQ FLJDUHWWH SDFNDJHV KLV 23/$ FODLPV DUH SUHHPSWHG *ODVVQHUjVIDLOXUHWRZDUQFODLPVWKDWGRQRWUHO\RQDVWDWH ,Q7RPSNLQZHUHFHQWO\UHYHUVHGWKHGLVWULFWFRXUWjVJUDQW ODZ mUHTXLUHPHQW RU SURKLELWLRQ ZLWK UHVSHFW WR RI VXPPDU\ MXGJPHQW LQ IDYRU RI WKH GHIHQGDQW WREDFFR DGYHUWLVLQJRUSURPRWLRQl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jWREDFFR DSSOLHV *ODVVQHU DOOHJHV WKDW 'HIHQGDQWV mFRQGXFWHG DQ SURGXFWVIURPWR7KHSODLQWLIIjVGHFHGHQWZDV DJJUHVVLYHPDUNHWLQJDQGDGYHUWLVLQJFDPSDLJQLQWHQGHGWR GLDJQRVHGZLWKOXQJFDQFHULQDQGGLHGLQ7KH LQGXFH IRUHVHHDEOH XVHUV WR SXUFKDVH LWV WREDFFR SURGXFW GLVWULFW FRXUW GHQLHG WKH GHIHQGDQWVj E PRWLRQ DQG 6XFKDGYHUWLVLQJRFFXUUHGLQSULQWPHGLDRQWHOHYLVLRQUDGLR LQVWHDG FRQGXFWHG DQ H[WHQVLYH IDFWXDO LQTXLU\ LQWR WKH RQELOOERDUGVDQGE\RWKHUPHDQVl*ODVVQHUDOVRDOOHJHVWKDW FRPPRQO\NQRZQKHDOWKULVNVRIVPRNLQJ6HH7RPSNLQ 'HIHQGDQWVPLVOHGWKHSXEOLFDERXWWKHKD]DUGVRIVPRNLQJ ) 6XSS G 1' 2KLR $IWHU H[DPLQLQJ WKH WKURXJKFKDQQHOVRWKHUWKDQDGYHUWLVLQJDQGSURPRWLRQVXFK H[SHUW WHVWLPRQ\ RIIHUHG E\ ERWK SDUWLHV WKH GLVWULFW FRXUW DV QHZVSDSHU DQG PDJD]LQH DUWLFOHV SUHVV UHOHDVHV DQG XOWLPDWHO\ GHWHUPLQHG WKDW SODLQWLIIjV 23/$ FODLPV ZHUH FRQJUHVVLRQDO WHVWLPRQ\ 7KXV ZH ILQG WKDW *ODVVQHUjV EDUUHGE\WKHFRPPRQNQRZOHGJHGRFWULQHKROGLQJWKDWmD FODLPVRIIUDXGEDVHGXSRQIUDXGXOHQWPLVUHSUHVHQWDWLRQDQG UHDVRQDEOH IDFW ILQGHU FRXOG QRW IDLO WR FRQFOXGH WKDW WKH FRQFHDOPHQW DUH SUHHPSWHG WR WKH H[WHQW WKDW WKH\ DUH KHDOWK ULVNV IURP VPRNLQJ SDUWLFXODUO\ WKH ULVN RI OXQJ SUHGLFDWHGRQDGXW\WRLVVXHDGGLWLRQDORUFOHDUHUZDUQLQJV FDQFHUZDVµFRPPRQNQRZOHGJHjLQl6HHLGDW WKURXJKDGYHUWLVLQJDQGSURPRWLRQ+RZHYHUZHILQGWKDW :HUHYHUVHGWKHGLVWULFWFRXUWLQSDUWKROGLQJWKDWEHFDXVHWKH *ODVVQHUjVIUDXGFODLPVSUHPLVHGRQDJHQHUDOmGXW\QRWWR SODLQWLIIjVGHFHGHQWERWKEHJDQDQGTXLWVPRNLQJEHIRUHWKH GHFHLYHlUDWKHUWKDQDmGXW\EDVHGRQVPRNLQJDQGKHDOWKlDUH HQDFWPHQWRIDQ\/DEHOLQJ$FWmDUDWLRQDOIDFWILQGHUFRXOG QRWSUHHPSWHGE\WKH$FW UHDVRQDEO\FRQFOXGHWKDWWKHSXEOLFGLGQRWKDYHµFRPPRQ NQRZOHGJHj RI WKH VWURQJ FRQQHFWLRQ EHWZHHQ FLJDUHWWH VPRNLQJDQGOXQJFDQFHUEHWZHHQDQGl7RPSNLQ BB)GDWBB:/DW $OWKRXJK *ODVVQHUjV &RPSODLQW LV IDU IURP FOHDU ZLWK UHVSHFW WR WKH SDUWLFXODU IDFWV KH DOOHJHV LQ VXSSRUW RI KLV DOOHJDWLRQV DJDLQVW 'HIHQGDQWV LW VHHPV WKDW *ODVVQHU DOOHJHV IUDXG EDVHG XSRQ DFWV FRPPLWWHG E\ ,Q RXU HDUOLHU GHFLVLRQ LQ 5R\VGRQ Y 5 s 5H\QROGV 'HIHQGDQWV ERWK EHIRUH DQG DIWHU :H QRWH WKDW &LSSRORQH GRHV QRW 7REDFFR&R)GWK&LUZHDIILUPHG EORFN *ODVVQHUjV IUDXG FODLP WR WKH H[WHQW WKDW LW LV EDVHG XSRQ FRQGXFW WKHGLVPLVVDORIDFODLPEURXJKWE\DVPRNHUDQGKLVZLIH RFFXUULQJ EHIRUH &LSSRORQH LQVWUXFWV WKDW WKH $FW FRQWDLQHG XQGHU D 7HQQHVVHH SURGXFWV OLDELOLW\ VWDWXWH ZKLFK OLNH D YHU\ QDUURZ SUHHPSWLRQ FODXVH GLUHFWHG DW JRYHUQPHQWDO UHJXODWRUV QRW VWDWH FRPPRQ ODZ DQG WKDW RQO\ WKH $FW SUHFOXGHV FHUWDLQ VWDWH *ODVVQHUY5s5H\QROGV 1R 1R *ODVVQHUY5s5H\QROGV 7REDFFR&RHWDO 7REDFFR&RHWDO +DYLQJDGGUHVVHGWKHTXHVWLRQRISUHHPSWLRQZLWKUHJDUG GHVLUDELOLW\ DQG ZKLFK LV UHFRJQL]HG E\ WKH RUGLQDU\ WR*ODVVQHUjVVWDWHODZGDPDJHVFODLPVZHZLOODGGUHVVLQ SHUVRQ ZLWK WKH RUGLQDU\ NQRZOHGJH FRPPRQ WR WKH WXUQWKRVHFODLPVQRWSUHHPSWHGE\WKH/DEHOLQJ$FWDQGWKH FRPPXQLW\ SURSULHW\RIGLVPLVVDOSXUVXDQWWR)HG5&LY3E 2+,2 5(9 &2'( ( HPSKDVLV DGGHG 23/$ ,,2KLR3URGXFW/LDELOLW\$FW FODLPVEURXJKWXQGHUDIDLOXUHWRZDUQWKHRU\DUHJRYHUQHGE\ %ZKLFKVWDWHV 8QGHU23/$DmSURGXFWOLDELOLW\FODLPl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mFRPPRQ NQRZOHGJHlGRFWULQH6HH7RPSNLQY$PHULFDQ%UDQGVBB $Q\ IDLOXUH RI WKDW SURGXFW WR FRQIRUP WR DQ\ )GBBBB:/DW WK&LUm23/$ UHOHYDQWUHSUHVHQWDWLRQRUZDUUDQW\ H[SUHVVO\H[HPSWVIURPOLDELOLW\SURGXFWVZKRVHGDQJHUVDUH UHJDUGHG DV µFRPPRQ NQRZOHGJHjl $PHQGROD Y 5 s 2+,2 5(9 &2'(023/$FODLPVEURXJKWXQGHU 5H\QROGV7REDFFR&R)G:/DW DWKHRU\RIGHVLJQGHIHFWDUHJRYHUQHGE\(RIWKH WK &LU 1RY XQSXEOLVKHG KROGLQJ WKDW VWDWXWHZKLFKSURYLGHV SODLQWLIIjV23/$FODLPZDVEDUUHGE\WKHFRPPRQNQRZOHGJH GRFWULQH &RQVXPHUV RI 2KLR Y %URZQ :LOOLDPVRQ $SURGXFWLVQRWGHIHFWLYHLQGHVLJQRUIRUPXODWLRQLIWKH 7REDFFR&RUS)G:/DW WK KDUP IRU ZKLFK WKH FODLPDQW VHHNV WR UHFRYHU &LU $SULO XQSXEOLVKHG DIILUPLQJ E FRPSHQVDWRU\ GDPDJHV ZDV FDXVHG E\ DQ LQKHUHQW GLVPLVVDO RI 23/$ FODLPV VWDWLQJ m7KH H[WHQVLYH FKDUDFWHULVWLFRIWKHSURGXFWZKLFKLVDJHQHULFDVSHFWRI LQIRUPDWLRQWKDWLVQRZDYDLODEOHUHJDUGLQJVPRNLQJWREDFFR WKH SURGXFW WKDW FDQQRW EH HOLPLQDWHG ZLWKRXW SUHFOXGHVDMXU\TXHVWLRQDVWRZKHWKHUWKHULVNVLQYROYHGDUH VXEVWDQWLDOO\FRPSURPLVLQJWKHSURGXFWjVXVHIXOQHVVRU NQRZQE\WKHDYHUDJHFRQVXPHUl3DXJKY5s5H\QROGV 7REDFFR &R ) 6XSS 1' 2KLR GLVPLVVLQJIUDXGIDLOXUHWRZDUQQHJOLJHQFHDQGGHIHFWLYH FRPPRQ ODZ FODLPV E\ SULYDWH SODLQWLIIV 6HH &LSSRORQH 86 DW GHVLJQFODLPVXQGHUEEDVHGRQILQGLQJWKDWmXVHUVRI WREDFFRSURGXFWVKDYHPDGHDFRQVXPHUFKRLFHLQWKHIDFHRI